Picking up Nickels

Wednesday, April 15, 2020

March CPI-U numbers released: Neutral on April 2020 issue I Bonds

The U.S. Bureau of Labor Statistics released the March 2020 Consumer Price Index (CPI-U) inflation data last week, which dropped by 0.22% last month, the first monthly decline since January 2010.

As always, now (along with the release of the September CPI-U) is one of the best times to consider purchasing I Bonds. The reason for this is that we now know what the rate of return for April 2020 I Bonds will be for both the first and second six month periods, which is important since I Bonds must be held for 12 months before they can be redeemed.

Using the CPI-U data from September 2019 (256.759) and March 2020 (258.115) (courtesy of inflationdata.com), we can calculate the variable rate for the second 6 month period for April 2020 issue I Bonds.

That means these bonds would earn a composite rate of 2.22% (using 0.2% fixed & 1.01 variable) for the first 6 months and 1.26% (using 0.2% fixed & 0.53% variable) for the second 6 months. Based on this, April 2020 issue I Bonds are a reasonable alternative when compared to something like the 12 month CD @ 1.90% APY currently being offered by Live Oak Bank.

While the composite rate is competitive, I believe the focus should be on the 0.2% fixed rate. As we saw when deposit rates plummeted during the 2008 financial crisis, the I Bond fixed rate remained at 0% for a three year period from November 2010 through November 2013. I believe we will be see the beginning of a similar Coronavirus-fueled trend when May 2020 I Bonds are available for purchase in a few weeks. I'm considering maxing out my 2020 limit by the end of the month while redeeming some older ones with a 0% fixed rate. In short, if you're considering buying I Bonds in 2020, I'd suggest buying before the end of April.

Monday, April 13, 2020

April 2020 Financial Asset Roundup

Here are my current financial assets as of the market close on April 9th, 2020:

Asset Mar
Checking 2,093 3,775 1,682
Money Market 45,005 54,697 9,692
Savings Bonds 162,007 162,269 262
Treasury Bills 0 0 0
CDs 95,263 95,516 253
Brokerage 171,277 169,168 -2,109
401k 215,748 207,362 -8,386
Roth IRA 166,075 159,027 -7,048
SEP IRA 815,967 803,206 -12,761
529 Savings 185,174 184,766 -408

Total Assets $1,858,609 $1,839,786 -$18,823

As the fallout from the Coronavirus pandemic continues, the S&P 500 dropped an additional 3.21% since the last update:

(chart courtesy of nasdaq.com)

On the jobs front, the unemployment rate for March rose from 3.5% to 4.4%, with 701,000 jobs lost. That number is headed much higher as millions of people file for unemployment benefits each week, with a recession being inevitable at this point. Oil prices have continued to drop by another third to the $23 level, which translated to a local regular unleaded gasoline price of $1.69 at my last fill up.

On the financial front, I pulled my brokerage account cash out of money market funds and transferred it to my Alliant savings account (current yield 1.35%) for the better rate and NCUA protection. Also, the March 2020 CPI-U numbers came out on Friday and I intend to post about the rate situation and what my current thinking is with regard to Series I savings bonds.

Coronavirus-related economic stimulus is also on my radar. As I mentioned last week, I applied for a forgivable Paycheck Protection Program Loan with Bank of America. While the process currently seems to be in limbo for me, my hope is that this will help tide me over for a couple of months as my business revenue declines with my largest client having closed their retail locations 3+ weeks ago. Mrs. Frugalson and I are also eligible for a partial personal stimulus payment (calculator here), with the money to start flowing this week. Stay tuned for a Get My Payment online tool from the IRS, which should be available soon.

As for the non-financial, the youngest Frugalson made it official, choosing to attend college at a state school that offered a full merit scholarship. I was concerned that my 529 savings would come up short with a private school undergrad degree costing $200k+, but now I'm in the fortunate position of having saved too much. There is a provision to pull scholarship money out of 529 plans without penalty, so I will be researching the logistics of that in the near future. No matter how you slice it, it's a nice problem to have. Finally, it's scary out there and I hope everyone stays healthy and safe. Be well!

Sunday, April 05, 2020

Coronavirus Pandemic: Applying for the Paycheck Protection Program for small business

As we all know, the human and economic fallout from the Coronavirus Pandemic is hitting out planet hard and quickly. As a small business owner soon to be facing a significant revenue shortfall, I submitted an application for the Paycheck Protection Program (PPP) when it became available on Friday, April 3rd, 2020.

As one would expect for a quickly cobbled together emergency relief package, there isn't a lot of information available about the specifics of the PPP application process. For a basic overview, I'd recommend checking out the pdf of the program's Borrower Application Form that can be found on Assistance for Small Businesses section of the US Treasury's web site. In my case, I have an existing business banking and lending relationship with Bank of America, so I applied via their web-based application which was basically on online version of the pdf application form. The Bank of America web site actually had some useful information about the program (see here), which gives a general overview of the process at their institution. They've also indicated that this is an online only program, so all communication, requests for documentation, etc. will be handled remotely.

I applied on Friday using my 2019 monthly average payroll and employer profit sharing 401k contribution numbers, with the loan amount working out to be 2.5 times that number. My hope is that this will help me keep my payroll going for an additional couple of months as my business revenues will start to dry up in the near future. Of course, the attractive part of this program is the loan forgiveness provision where the SBA will forgive loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities.

I did receive a "We received your application" email from Bank of America this morning, so it appears that the wheels are churning on this somewhere. I'm going to have to provide documentation of my payroll and retirement plan numbers when asked, so I have started gathering that information together from my accounting and payroll records. Hopefully programs like the PPP and expanded unemployment coverage will help us keep things together until the COVID-19 virus finally burns itself out.

Best wishes to everyone out there, may you stay healthy and safe!